Japan PM tells AFP Abenomics is ‘the only way’

June 6, 2013
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Shinzo Abe answers a question during an interview with AFP in Tokyo on June 6, 2013/AFP
Shinzo Abe answers a question during an interview with AFP in Tokyo on June 6, 2013/AFP
TOKYO, Jun 6 – Japanese Prime Minister Shinzo Abe said Thursday his economic policies are “the only way” to rein in Japan’s huge public debts and spur growth in the world’s third-biggest economy.

His comments came in an exclusive interview with AFP in his office, after the International Monetary Fund welcomed his plans but warned of “considerable downside risks” over Tokyo’s ballooning national debt.

Since coming to power in December, Abe has launched an array of pro-business, big-spending measures, mixed with aggressive monetary policy by the Bank of Japan, in a package touted as “Abenomics”.

The measures are designed to end more than a decade of deflation that has smothered sustained growth in Japan, where national debt stands at more than twice the size of its economy, the worst among industrialised nations.

That debt is increasing because the government has to borrow to fund normal expenditure.

“Japan has a problem of accumulated debt. Unless we end deflation, in any case, this accumulated debt problem will not be solved,” Abe told AFP.

“I think this is the only way. Now, the Japanese economy is generally recovering smoothly,” he said.

Abe was speaking shortly before French President Francois Hollande touched down in Tokyo for a three-day visit expected to feature talks on business ties that both sides hope will spur their economies.

“The Japanese economy has been stagnant and has suffered from deflation over the last 15 years,” the premier said.

“Our GNI (Gross National Income) has diminished some 50 trillion yen ($505 billion). Under these circumstances, Japan was losing its position in the world.

“To counter this, I will push through drastic monetary policy, fiscal measures and a growth strategy that will stimulate private sector investment, so that the economy can be rid of deflation.”

Abe has touted the “three arrows” of his growth strategy. The first two — government spending and monetary easing — were fired earlier in the year, sending the stock market racing as the once sky-high yen plunged.

The third “arrow” — structural reforms of Japan’s regulation-bound economy — remain to be fully fleshed out, but in a speech on Wednesday, Abe began outlining his broad aims.

These included the creation of special business zones in Tokyo and other big cities, boosting the participation of women in the workforce, doubling inward investment and restoring domestic firms’ capital spending to pre-financial crisis levels.

But it has been the plunging yen and the burgeoning borrowing that has raised eyebrows outside Japan, with complaints that Tokyo is deliberately pushing down the value of its currency to gain a trade advantage over rival nations.

Abe on Thursday hit back, insisting a lower yen was a by-product, not the end result.

“Sceptics say Japan is intentionally manipulating the yen. That is wrong,” he said.

“Japan’s economic recovery will contribute to the growth of the global economy and the future of developing countries a great deal.”

The Washington-based IMF, which expects Japan’s economy to grow 1.6 percent this year, said Abenomics “provides a unique opportunity to end decades-long deflation and sluggish growth, and reverse the rise of public debt. The rewards are potentially large.”

But the Fund, in a report issued on May 31, also warned that “there are considerable downside risks to the outlook”.

Coming amid convulsions in the Japanese stock market, which has seen precipitous drops in recent weeks as it rows back from a five year high, the report echoed concerns of some investors that Abenomics is all style and no substance.

“Lack of concrete fiscal measures to bring down public debt, or a delay in the consumption tax increase, could elevate risks of a rise in government bond yields, which would undermine fiscal and financial sector stability,” it said.

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